Highlights

• July TIV sustained +2.1% mom at 58.6k units despite shorter working days, on the back of aggressive campaigns for Raya festival. However, it was a drop of 2.7% yoy affected by weakened underlying consumer demand. YTD TIV dropped 3.2% yoy to 380.8k units, which was 57.5% of HLIB’s expectation of 663k units for 2015. We expect sales growth in 2H15, due to low base effect and on-going aggressive sales campaigns.

Comment

• Perodua (UMW and MBM) reported stronger +9.0% mom sales at 18.0k units on strong demand for Axia model. YTD, Perodua achieved 126.5k sales (+11.3% yoy), on track to achieve 208k sales target for 2015. We note that MPV Alza model is 6 years old and due for replacement model by 2016. At the same time, more updates on existing models will be introduced to keep the excitement in the market.

• Proton (DRB) reported highest monthly sales in the year at 10.9k units, a growth of 17.3% mom, indicating higher acceptance for new Iriz model. YTD, sales was still weak at 61.1k units (-17.6% yoy), affected by the aggressive competition. Proton is expected to introduce replacement model for Saga, Persona and Perdana in 2016 (which was long overdue for replacements).

• Honda (DRB) climbed back to the top spot within foreign segment, with market share of 14.4% in July and 13.7% YTD. YTD, Honda recorded 52.0k sales (+18.6% yoy), on track to achieve its 86k target in 2015, driven by HRV, City and Jazz. The recent fire at Melaka warehouse has affected its production lines, which may lower deliveries for upcoming months.

• Toyota (UMW) slipped to second spot with 12.5% market share in July. YTD, Toyota only achieved 46.1k sales (- 22.4% yoy) mainly due to stiff competitions and lack of exciting (volume driving) models.

• Nissan (TCM) retained its 3rd spot with 7.2% market share in July. YTD, Nissan reported 28.1k sales (+8.4% yoy). Nissan continued to invest in 3S and 4S centers to improve branding and sales volume.

Risks

• Prolonged tightening of banks’ HP rules.
• Slowdown in the Malaysian economy.
• Global automotive supply chain disruption.
• Sudden jump in fuel prices and interest rate.

Rating

• Neutral

Positives

• Potential export to regional market, i.e. Malaysia as a hub; and
• Implementation of Energy Efficient Policy.

Negatives

• Tightening of bank lending rules and rise in inflation;
• Instability of global automotive supply chain; and
• Depreciation of RM.

Valuation

• We maintained Neutral stance on the Automotive sector, with MBM (TP: RM4.28) as our Top Pick.

Source: Hong Leong Investment Bank Research - 20 Aug 2015